Contents
THE 2001-2002 DTI ANNUAL REPORT
FOREWORD BY THE DIRECTOR-GENERAL
CHAPTER 1: THE EXECUTIVE MANAGEMENT UNIT
CHAPTER 2: ENTERPRISE AND INDUSTRY DEVELOPMENT AND CONSUMER AND CORPORATE REGULATION
CHAPTER 3: INTERNATIONAL TRADE AND ECONOMIC DEVELOPMENT
CHAPTER 4: THE ENTERPRISE ORGANISATION AND TRADE AND INVESTMENT SOUTH AFRICA
CHAPTER 5: GROUP SYSTEMS AND SUPPORT SERVICES DIVISION
ANNEXURE A:
ANNEXURE B:
ANNEXURE C:
The 2001-2002 dti Annual Report in Brief
A Summary
The dti aims to improve the lives of South Africa's economic citizens. Its core business is the economic transformation of South Africa, promoting racial and gender equity, sustainable economic development, increased investment and jobs. The dti has transformed itself to become an efficient, effective, customer focused organisation that is on top of current economic developments and trends. This is embaodied in the Integrated Manufacturing Strategy (IMS) released by the dti this year. New policies and programmes are in place to meet the needs of previously disadvantaged entrepreneurs and local and international investors, implemented by focused project teams who are measured on their performance. In addition, the past year has seen the dti develop a coordinated, strategic approach to key issues such as selecting certain sectors of the economy for special attention. This approach extends to the dti Group of Institutions, and across government, down to local government level. The dti is delivering!
Foreword by the Director-GeneralAs the dti reaches the final stages of what is nothing short of a revolution in the way it operates, we can look back on the past year with some pride. For the first time we are in sight of having a dti suited to the needs of a developing economy. For the first time the dti is able, in concert with its partners in the Council of Trade and Industry Institutions (Cotii) and outside the dti Group, to work collectively to maximise our impact on the South African economy in its developmental phase. It has not been an easy road and, like all fundamental shifts in operations, it has put pressure on us all. But in comparison with the Department of Trade and Industry we inherited in 1994, the new dti is an entirely different and much more appropriately focused institution.
What changes institutions, however, is not only new structures, but changes in the culture of the organisation. Real change in an organisation demands real changes in people, and for the most part the dti I work in has met the challenge head on. We will reap the benefits in the years to come and the sacrifices and hard work of the dti team has made it possible. To them I extend my thanks and my gratitude for a job well done. The dti of South Africa is prepared to play a key role in breaking the structural impediments to employment growth and a stronger economy. The economic citizens of South Africa expect nothing less, and we are now working as a team to meet, and hopefully surpass these expectations.
Thank you.
Dr A Ruiters
Director-General
The dti in recent years has restructured itself to meet the practical needs of the economic citizens of South Africa. As part of this process, the dti has built a knowledge base of information, allowing it to address the pressing economic issues of the day and to anticipate key future trends. This enables the dti to understand the economy not in any abstract sense, or at one remove from the issues, but in terms of actual realities as they impact on the lives and life prospects of South Africans. This is what is termed the real economy. Manufacturing plays a central role in the real economy.
There has been a consistent improvement in the South African manufacturing sector since late 1999. This improvement accelerated in 2001 and the momentum was maintained in the first two quarters of 2002. In mid 2002, domestic sales were increasing strongly. Business confidence amongst manufacturers is higher than at any time since 1994. There is similarly increasing optimism in trade (wholesale and retail) and, to a lesser extent, in construction. While investment and particularly employment have fared less well, the overall improvement in economic activity and confidence is expected to have a positive impact on investment and employment over the next 12 months.
Output, export, investment and employment growth for 2001, and the projections for 2002 and 2003 are summarised below:
Note: This forecast was generated in May 2002. While there was a further interest rate hike of 1% in June 2002, stronger domestic demand than anticipated and buoyant expectations suggest that the forecasts for 2002 and 2003 are likely to be met and possibly slightly exceeded. Since at least 1994 there have been a number of major structural changes in the South African manufacturing sector.
These changes have also been evident in the year under review. They include:
Government’s Microeconomic Reform Strategy is specifically directed at removing the obstacles that retard economic growth. Of particular importance to the performance of the manufacturing sector is addressing the so-called cross cutting issues, namely infrastructure, access to finance, human resource development and technology. The broader involvement of government in securing the microeconomic conditions that are favourable for further growth will be critical for the future development of industry.
What this means in practice for people’s day-to-day lives in the real economy is two fold. First, although the threats of runaway inflation, de-industrialisation and very high interest rates have been very successfully contained and reversed by government’s macroeconomic restructuring, real problems remain. Had South Africa not succeeded in its macroeconomic reforms, the crises now sweeping Latin American economies (Argentina being a good example) would quite easily have been South Africa’s fate. Macroeconomic stability is an essential precondition for microeconomic reform. Secondly, microeconomic reform in the form of achieving lower unemployment and poverty levels is our next major challenge. Export-orientated manufacturing growth, while an undoubted success story, cannot achieve this on its own. On the contrary, the current levels of unemployment and poverty and regional inequalities are an equation for socio-political instability that could undermine all South Africa’s economic successes.
How Manufacturing has Grown
Since the third quarter of 1999, manufacturing output has grown at about 4% per annum.
The rate of increase in the first quarter of 2002 as compared to the first quarter of 2001 is a
little higher than 5%. Industrial production in South African is currently increasing at a rate
that is only exceeded by China amongst the industrialising countries
(The Economist, June 15-21 2002).
High rates of output are the result of increasing exports, import replacement demand following the fall in the value of the Rand at the end of 2001, but also, in the first half of 2002, an upsurge in final sales in the domestic retail sector.
Over the past few years, sustained increases in sales have been evident in motor vehicles, chemicals, television, radio and communications equipment. The significant expansion in motor vehicle production has also been a spur to related industries – particularly glass, rubber, leather and plastics.
The weaker performing sectors include the wage goods (consumer) industries – particularly textiles, wearing apparel and footwear as well as food and beverages. Here depressed domestic demand has been the principal restraining factor and, particularly for footwear, increased import penetration has led to weak performances. Some capital goods sectors, such as electrical machinery and transport equipment have also seen weak performance. The principal factor here has been low levels of domestic investment.
The recent revival of domestic demand and the rise in manufacturing investment may reverse this trend later in 2002. The rise in state infrastructural spending allows for more buoyant conditions in the construction sector, with knock-on effects on the demand for building materials. However, the interest rate increases will curtail demand for consumer durables.
Examined from the perspective of the technological composition of output, South African manufacturing has seen the share of the low technology sectors decline; the share of medium technology sectors remain constant, while the high technology sectors have seen a steady increase. Currently, the high technology sectors contribute more than 41% to total manufacturing value added.
Export Orientation of Manufacturering
There has been a steady increase in the share of exports in manufacturing output. Whereas in 1994, exports constituted 14% of manufactured output, this had doubled to 28% in 2001. Moreover, rising export orientation has been consistent – even in periods when domestic demand has been strong and universal – and is characteristic of all manufacturing sectors.
The rising export orientation of South African manufacturing is consistent with global trends. Manufacturing’s share in total exports rose from 35% in 1994 to over 50% at the end of the 1990s. Similarly, the share of primary products in South Africa’s merchandise trade declined from 64% in 1968-1970 to 37% in 1998-2000. Despite our significant raw material resources, primary products make up a smaller share of our exports than for most other African countries – only Morocco, Madagascar, Mauritius and Tunisia have a lower share of primary products in merchandise trade (WTO, 2002).
The consistency and the magnitude of exports strongly suggests that exporting has become a permanent and critical feature for many manufacturing firms. Far more consistent and deeper engagement with export markets by many more manufacturing firms is likely to enhance efficiencies. The learning entailed in competing in demanding markets is likely to have reinforced the evident rise in the productivity of the manufacturing sector (see overleaf).
The following features are evident from Table 2:
The growing export orientation of the South African manufacturing industry and the growing importance of the high technology sectors in the composition of exports is an encouraging trend. The same trends are evident in other industrialising countries. However, some of these exports, while formally classified in the high technology sectors, are raw material intensive and the value added component of these exports may be quite low. Catalytic converters, in which there has been a massive increase in exports, are a case in point.
Analysis of South African manufactured exports at the product level shows that the dynamic
products in international trade are poorly represented in South Africa’s manufacturing exports.
The 20 most market-dynamic products with the highest global growth rates constituted 29% of
developing country exports in 1998
(UNCTAD 2002, 55 Table 3.1).
They made up only 3% of South Africa’s exports. Moreover, between 1998 and 2001, there was no significant tendency for this share to increase. South Africa’s export performance is particularly poor in electronics and electrical goods which have experienced the most dynamic global export growth rates.
A number of trade agreements have improved market access and facilitated export growth. Exports to the United States, particularly under the American Growth and Opportunity Act (AGOA), have risen strongly, most notably clothing. Exports to Europe have also seen significant growth over the past year. Trade with Africa increased by 24% last year. There has also been very significant growth to other countries – notably India and China – 25% and 63% last year, respectively. In 2001, the balance of trade for manufacturing improved to –R31billion (from –R33.6 billion in 2000). With investment rising, increasing importation of capital equipment and intermediaries and a higher fuel price are resulting in imports rising more rapidly than exports in mid-2002.
Over the past few years, there have been sustained and rapid increases in labour productivity. In 2001, labour productivity rose 5.8%. The precise reasons are debatable, but there is evidence that as competitive pressures have risen, both in the domestic and particularly in the export market, firms have adopted more advanced production technologies. These are generally labour saving – particularly of unskilled and semi-skilled labour. There is a clear shift towards a lower labour intensity, i.e. less employment per unit of output.
Rising productivity has underpinned increasing employee remuneration which rose by just over 3% in 2001 in real terms. However, manufacturing productivity has increased in the context of a lower rate of growth in output leading to lower employment. While there is some uncertainty about the precise numbers, manufacturing has been shedding jobs at over 2% per annum. By mid-2002 there was some indication, though, that labour retrenchment is bottoming out. The decrease in employment in the first quarter of 2002 as compared to the first quarter of 2001 was a little over 1% and working hours are lengthening. Enhanced investment following strong export performance, particularly if the global economy improves as generally expected, combined with rising domestic retail sales makes it likely that the rate of retrenchments in 2002 will be lower, forecast to be 0.41%, and this will be followed by moderate employment growth, about 1%, in 2003.
While most sectors have seen employment declines, much of the decline is concentrated in the labour intensive wage goods sectors. These sectors have also tended to be more focused on the domestic market which has experienced slow growth. They have generally been less successful at enhancing their export orientation and, in some cases such as footwear, have had more significant import penetration. Employment losses have happened in a context of slow or stagnant growth combined with rising labour productivity and, in some cases, higher levels of import penetration.
The problem is that in South Africa the domestic economy is not driving economic growth – unlike, for instance, in Australia. Our economy cannot afford to have growth solely driven by exports. There are also major domestic constraints that remain unresolved, which the government’s microeconomic reform strategy seeks to address. The economy is still too racially skewed, which means the skills base is still too narrow. The levels of value-added in the economy are still too low - we still import too much in the form of intermediaries. Levels of technology diffusion are inadequate. Thus the Integrated Manufacturing Strategy (IMS) released by the dti in 2002 places stress on three key areas – value-added, skills development and technology transfer, along with the need for more efficient logistic systems. It is these structural impediments that South Africa must break to bring unemployment and poverty levels down appreciably.
One factor promoting rising productivity and a decline in the demand for unskilled and semi-skilled labour has been the rising skill intensity of manufacturing. This rise in skill intensity is slow but steady and is common to all industrial sectors. In 2001, 10.2% of the labour force was classified as highly skilled – up from 10% in 2000.
Over the past five years, capital expenditure in manufacturing has risen at a little more than 1% per annum. Manufacturing investment as a share of value added in 2001 was 20.6% - unchanged from 2000. However, manufacturing fixed investment accelerated towards the end of 2001. Investment increased by 5.5% (in constant Rands) in the first quarter of 2001 as compared to 2002. While fixed investment slowed in the second quarter of 2002, manufacturers’ 12 month intentions to invest in machinery and equipment improved slightly.
A few sectors have experienced significant growth in real capital stock, but this has generally been limited to smaller industries such as scientific equipment, leather and plastic products. Motor vehicles, parts and accessories and basic chemicals are two of the larger industries that have recorded some real growth in capital stock. Towards the end of 2001, radio, television and communications equipment (spurred by the granting of the third cellular licence) and also some of the more labour intensive sectors, particularly wearing apparel, experienced significant increases in investment. This investment is probably linked to enhanced export expectations – notably in respect of clothing. Investment in building and construction materials are benefiting from increased state infrastructural expenditure, but private sector investment in building is likely to decline as a consequence of the interest rate increases. The current high level of business confidence amongst manufacturers strongly suggests that investment rates will increase further over the short term. Business confidence is typically a leading indicator of investment.
Over the past 12 months, the South African manufacturing industry performed well by comparison with almost all other industrialising countries. Despite the global economic slowdown, output and exports rose steadily. Moreover, labour productivity continued its rapid rate of increase and this augurs well for future competitiveness and performance. Investment and particularly employment performance were far weaker, but here too there are distinct signs of improvement in the short term.
Real factors and sentiment are increasingly in alignment suggesting enhanced performance in every indicator. There are, of course, dangers to this optimistic projection. On the international front, the expected global upturn is still hesitant and there are concerns, in particular, over the performance of the US economy. However, while the financial markets are very mixed, there is considerable dynamism in the real economy. Domestically, the concern centres on inflation and the consequent possibility of future rises in the interest rate. However, here too there is some cause for optimism with strong indications that the inflation rate has peaked and will begin a steep decline, so removing the threat of further increases in the interest rate.
Positive short term expectations are reinforced by the profound structural changes that have taken place, particularly since 1994, and which have resulted in a far more efficient and competitive manufacturing sector. This suggests that this upward momentum can be sustained for a longer period.
Nonetheless, despite these very real achievements, major challenges face the South African economy in the short-to-medium term. They nearly all have to do with the impact of the real economy on ordinary citizens’ lives. The IMS and the microeconomic reform strategy are essential ingredients to unlocking the growth potential of the domestic economy and changing people’s lives for the better in real and immediate ways. Current levels of poverty and unemployment are unsustainable over the longer term. Increasingly, this is where the focus of economic policies and strategies must lie in the year ahead.
Leading the Economic Transformation
The restructured Department of Trade and Industry (the dti) has emerged with a much stronger, unifying focus, based on a clear analysis of the real economy in South Africa. This analysis is informed by an appreciation of the basic needs of South Africans, the drive towards equity and sustainable development, and a much more coherent and strategically informed approach to understanding the needs of our economy for sustainable development and high levels of growth.
Within the structure of the dti, much of this work occurs within the Executive Management Unit (EMU). It is here where much of the policy and research work on South Africa’s economic future is centralised. However, while the dti is accorded with an emerging leadership role in shaping economic policy, it is not something that the dti can do, or intends to do, alone. This is why the dti has, during the period under review, taken vigorous steps to consult with all interested stakeholders. Their support and involvement underpins the economic strategies and processes developed towards changing the South African economy to a higher growth, higher employment path.
This process of coordination across government and across the public and private sectors dominated much of the dti’s work over the past year. It began at home, with the establishment and entrenchment of the Council of Trade and Industry Institutions (COTII), comprising all those agencies funded out of Parliament’s allocations in terms of Vote 31. For the first time, from the CSIR and the IDC to Ntsika and Khula, the dti Group is working as one towards a shared vision of the South African economy in a strategically coordinated way, based on a shared understanding of the key features of the South African economy. In this manner, the resources dedicated by the citizens of this country to the wider dti Group are now directed in a much more focused way, to maximise the benefits of their impact on the economy and South African society.
It does not end there. The dti has successfully built strong relationships with the provinces, and with the National Council of Provinces (NCOP), meeting with them on a formalised basis at regular intervals. This is important because it is at the provincial and local government levels that much of the delivery of state services happens. Similarly, within the cluster of government departments linked to economic development issues, the dti is playing a leadership role in coordinating a joint effort towards a shared vision based on a mutual understanding of the real South African economy and its desired future trajectories.
Most recently, this dti emphasis on coordination was realised at the level of South Africa’s six major Metros, who collectively control R40 billion a year in public sector expenditure. The dti now meets regularly with the Metros as it does with COTII and the provinces, to discuss economic strategy and direction. Behind all this is a research and strategy capacity that, thanks to the restructuring processes launched at the dti since 2000, is much deeper and stronger than anything the dti has ever had at its disposal in the past. The dti is becoming a respected and acknowledged resource in understanding the dynamics of the South African economy, not in any high-level, theoretical debate but in terms of what is actually happening within it – the real economy. With this improved understanding, the dti is able to devise informed and practical strategies to assist the economy towards desired outcomes, and to begin to track its real successes and shortcomings, and respond quickly and appropriately.
These desired outcomes are summarised in the major dti policy document launched during the period under review, entitled Accelerating Growth and Development: The Contribution of the Integrated Manufacturing Strategy (IMS). The IMS itself emerges from an extensive series of intensive consultations with business, government and labour, amongst others. The IMS follows up on the Integrated Industrial Strategy initially launched for discussion in May 2001 by the dti, and subsequently adapted, improved and refined. Key to the IMS is "joined-up" public sector coordination and the concept of public-private partnerships. The IMS seeks to define state actions to accelerate growth and development, and it is in turn informed by government’s Microeconomic Reform Strategy. A central emphasis is on improving the competitiveness of the South African economy by eliminating constraints and blockages to economic efficiencies and equity.
The dti’s analysis leads it to believe that South Africa’s competitiveness will be built on the following:
This informs the fundamental approach of the IMS. In turn, the Microeconomic Reform Strategy that feeds into the IMS emphasises the following goals:
As defined by President Mbeki in January 2002, the Microeconomic Reform Strategy aims at speeding up growth and development by removing obstacles to competitiveness, to economic efficiency and to equity. There are six key focus areas: growth, competitiveness, employment, small business (SMME) development, black economic empowerment (BEE) and a more equitable spread (spatial equity) of investment across the country. Underpinning this is the emphasis on coordination across government sectors, between departments, within departments and between social partners.
Also vital are related issues such as improving investment in Research and Development (R&D), diffusing the impact of technology and innovation more widely across the economy, and human resource development. Indeed, the Microeconomic Reform Strategy emphasises the upskilling of the labour force to meet the demands of an increasingly knowledge-intensive economy and lowering unemployment. It also requires improving access to finance, especially for SMMEs and strategically providing infrastructure to unlock potential and crowd in private sector investment around focal points. Attention to keeping down the costs of doing business is another key component (e.g. electricity, transport, telecomms) – making sure that a coordinated approach towards lowering input costs is adopted.
The Microeconomic Reform Strategy informs the IMS in another critical way. It highlights five target sectors identified as having high potential for rapid growth and job creation.
This is not exclusive of other existing sectors but it does highlight useful sectors to watch. They are:
The IMS lays the basis for a common understanding, a coherent strategy and a clear vision of where the South African economy should be headed. It entrenches the principle of social partnerships, which has characterised government’s positive and constructive interactions with organised labour and business since 1994. Building on the growing importance of manufacturing as a share of South African exports (over 51% by 2000), the IMS supports export growth and increased market access – both core dti functions (see overleaf). In turn, vital for success here is increased competitiveness and a conducive regulatory environment – again both areas of core dti business (see overleaf).
Making it HappenGovernment in South Africa is often criticised for shortcomings in delivery. How will the dti deliver on the IMS?
The answers are as follows:
At a broader, cross-cutting level, the dti’s focus extends to improving the regulatory environment, promoting investment, improving access to finance (including venture capital), deepening partnerships and measuring its own performance against concrete targets. The aim is a performance-driven dti accountable to the economic citizens of South Africa. On this path, the restructured dti is well on its way to making a major contribution towards a better life for all South Africans. In this spirit, the dti is also one of the key supporters of the Proudly South African Campaign which focuses on increasing local jobs and re-emphasising the quality of South African-made products.
Becoming More Responsive to our Customers: Marketing and Communications
A central part of the dti's transformation process over the last two years has been placing the customer at the centre of the dti's business. In this case, the customer means the economic citizen of South Africa. Moreover, the focus is not just on the big, established economic citizen. The dti has a special mandate to try by all means to bring black people, women, and the rural population into the economic mainstream of South Africa, and to focus on development in a regional context. To be effective, this means the dti has to understand the wants, needs and problems of the full range of its clients, and to adjust its products or offerings and the way it delivers them to the customer's needs, not the dictates of bureaucracy. All institutions over time create their own self-perpetuating rules which serve the interests of the members of that institution, rather than those of the institution's customers. Hence Dr Alistair Ruiters' message of "break the rules" (within the confines of best practice corporate governance) where these impede effective delivery of services.
As part of this process the dti in 2001 launched its own survey of customer perceptions across all its customer segments, from big business to microenterprises to foreign investors and its stakeholders from national government to NGOs. This is what the dti found:
Generally the bigger the business or the more resources the stakeholder has, the better their understanding of the dti. But the converse applies, with perceptions of the small or emerging entrepreneur that either the dti is not doing enough in a user-friendly way to be part of the equation, or they do not know how the dti works.
Hence the creation within the dti of a specialised, group-wide Marketing and Communications Division. In recent years the dti has produced a full range of world-class publications focusing on policy and practice. But more is needed. Particularly for the formerly marginalised, the dti has to go out there and actively sell its services and support systems, through appropriate marketing and communications strategies, from radio to print media, from trade exhibitions to community-based workshops and roadshows. There is no point in hiding the dti's light under a bushel, particularly with all the potential entrepreneurs whose contributions remain untapped and unsupported.
The dti's New Way of Working
Side by side with the recognition of the importance of communications comes a new focus on accountability and measurement of performance of dti staff. For the dti staff, in career terms the sky is the limit - if you produce. The arrival in early 2002 of a dynamic new COO, Ms Portia Molefe, provided a champion for driving this new way of working through the dti structures. This is part of the drive to make the dti an intelligent, responsive, performance-driven public sector body.
Civil servants are seldom comfortable with new ways of working and the dti is no exception. The solution is to put the theory into practise, which is why the dti is moving towards a project-based, rather than a division-based approach. A project is defined in terms of key national strategies and dti policies. An interdepartmental team is then put together to drive that project, usually with a strong sector focus. The technical term for overseeing or managing this process is "matrix management" - cross-functional cooperation towards a set performance target. To this end, measurement mechanisms and monitoring processes are being devised across the range of dti activities, from high level policy and trade negotiations to delivery at the coal face. Not only that, but those involved in the project are directly accountable for delivery and performance. It is a sea change for the public service and often produces initial resistance, but it is the only path if the President's directive to substantially improve the delivery of services in South Africa to build a better life for all is to be met. Where difficulties are encountered in reaching performance targets, help is supplied as soon as the problems emerge. The dti, for instance, now has a stronger Human Resources Division able to attract the high level skills needed to make the dti deliver on its mandate from government.
Putting the IMS and the Microeconomic Reform Strategy into Practice
Within the dti the Enterprise and Industry Development Division (EIDD) applies policy to practice.
EIDD’s objectives are as follows;
Automotive sector
In terms of competitiveness during the year under review, in the automotive sector the Productive Asset Allowance (PAA), designed to encourage vehicle model/platform rationalisation and further investment in the automotive sector, continued to facilitate investment now totalling R4.8 billion. The dti is centrally involved in the Motor Industry Development Council and in the Motor Industry Development Programme (MIDP) – one of South Africa’s major success stories. In January 2002 the Durban Auto Cluster was launched to build synergies around logistics, supply chains and skills and training in that region. And the Strategic Investment Team has continued to secure further investments in the component sector (e.g. exhaust systems, plastic mouldings).
Chemical sector
For the Chemical sector, EIDD helped with the establishment of two Internet web sites, Chemweb and ChemISSA, to facilitate up-to-date information sharing. More attention is also being paid to environmental issues in line with international trends and the World Summit on Sustainable Development in Johannesburg in August 2002. Projects assisted in this regard range from the development of reusable energy resources to the reduction of pollution in the Durban South Industrial Basin. EIDD has actively participated in the formulation of the National Strategy on Biotechnology and the launch of the first bio-incubator, E-goli, in Gauteng. Industrial Participation-linked investments have helped give a strategic focus to growth, one example being AECI Bioproducts. Increasingly, biotechnology is outpacing the IT sector as the new growth wave of the future.
ICTs
Another key sector in terms of the Microeconomic Reform Strategy (see above, Chapter 1) is Information and Communication Technology (ICT). Here the dti is involved in the establishment of both the ICT Executive Forum and the ICT Development Council, the latter chaired by Trade and Industry Minister Alec Erwin. Issues being addressed stretch from skills development and training to the development of an ICT Marketing and Communications Plan and a whole spectrum of projects clustered around SAITIS (SA Information Technology Information Systems) for spreading and growing the ICT sector and meeting its needs in South Africa.
Metals Sector
In the metals sector, attention in 2001-2002 focused mostly on the restructuring of the carbon steel industry. The dti made matching grants to support beneficiation of stainless steel, for instance in the manufacture of catalytic converters. The jewellery sector benefited from Industrial Participation investments and the completion of the FRIDGE study (Fund for Research into Industrial Development, Growth and Equity). With initial support from the dti, a notable victory was achieved in obtaining exemption for South African carbon steel exports from the new round of prohibitive tariffs imposed by the US.
Agroprocessing Sector
Agroprocessing concerns centred around greater coordination in policy and initiatives between all three levels of government, in line with the IMS emphasis on a collaborative targeted and coordinated approach to key sectors across government and state-owned enterprises (SOEs). A revised sugar policy was completed by EIDD, as well as work on trade homogenisation on agricultural products within the SADC.
Textiles and Clothing Sector
The textiles and clothing sector received support from the dti via the Unit for Textiles and Clothing, and the Customs Liaison Committee set up with private sector involvement. A major industry strategy review was launched by Minister Erwin in Cape Town at a Textiles, Clothing and Retailers Summit in March 2002. Out of this a shared vision for the sector has emerged, which will be carried forth via a forum or committee for major South African retailers.
Innovation and Technology
Another crucial IMS focus is innovation and technology. Here EIDD is busy with support for the establishment of incubator pilots – Furntech (furniture products), the National Fibre Centre (fibre products – including mopani worm wild silk), a stainless steel incubator and an aluminium incubator for which the dti approved R2.5 million. Together with the Department of Arts, Culture, Science and Technology, the dti via the Godisa programme is also supporting other incubators for areas such as small mining. The implications for SMMEs are obvious and favourable. And the dti has launched a broader Technology Venture Capital Programme in support of innovation and technology generally.
Important progress was made in 2001-2002 by EIDD’s Standards and Environment units on creating and monitoring a world-class quality control framework in South Africa. This included a fundamental review and updating of the South African Technical Infrastructure for standards, quality assurance, accreditation and metrology (SQAM). An Environmental Implementation Plan was finalised in February 2002. EIDD is also extending its standards work to SADC countries, supported by a €30 million SADC project in this regard.
EIDD also worked, with the rest of the dti, to support the launch of the Proudly South African Campaign, launched in October 2001. The Proudly South African Campaign is focused on promoting local, high quality goods and services, with the aim of creating jobs and boosting the economy. EIDD also assisted with the taxi recapitalisation project, helping with finalising tenders.
The National Industrial Participation Programme has reached take-off stage, with investments worth US$300 million generated by 2000. At a conservative estimate, a further US$350 million in investment from the non-defence sector over the next seven years can be confidently expected. By 2004 projects to the value of US$5 billion are anticipated.
Important policy work in the area of a Strategy for Supporting the Development of Franchises was a feature of EIDD’s work, in conjunction with NAMAC, in 2001-2002. In support of SMMEs and BEE (black economic empowerment), EIDD also runs a Business Linkages Project and a Fostering of Entrepreneurship concept scheme. A special BEE unit established within EIDD is concentrating attention on a draft BEE strategy for government, including a draft BEE Procurement Policy.
In terms of the SDIs mentioned earlier, the dti by the end of 2001/2002 had completed work on the 17 local and transnational SDIs. These are now fully integrated into the relevant government line departments and agencies, with progress monitored by MinMEC. The dti, via the Regional SDI Support Programme, is also giving NEPAD some early concrete support by assisting with SDIs launched by SADC countries themselves, from the Beira Development Corridor to the Walvis Bay SDI, with more to come in Tanzania and Rwanda.
Consumer Protection and Business Regulation: Creating the Environment for Transparency, Fairness and Growth
The dti promotes increasing consumer awareness and a wider appreciation of the importance of intellectual property rights. This includes modernising the regulatory framework for business and accelerating the corporate law reform programme. It extends to launching investigations proactively and monitoring consumer and business affairs in the interest of all economic citizens in South Africa. Hence the importance attached to the dti's Consumer and Corporate Regulation Division (CCRD).
Included in this area of the dti’s work is the National Gambling Board and the National Lotteries Board. In addition, the dti, through the CCRD, also operates the National Inspectorate, the National Consumer Affairs office and, at the heart of South Africa’s drive for global competitiveness, the Competition Commission and its associated Competition Tribunal.
Noteworthy achievements in these areas for the 2001-2002 period included less visible but important steps in promulgating new regulations and policies. A few examples will suffice. They range from the establishment of the South African Advisory Council on Responsible Gambling, to the fair and effective distribution of National Lottery funds and the launch, without any controversy, of National Lottery scratch cards. The public education campaigns of the National Consumer Affairs office continue, alongside the updating of relevant regulations and legislation. The Competition Commission and Tribunal presented 60 advisory opinions and 350 evaluations.
Groundbreaking work is also continuing with the dti on Patents and Trademarks, with 10 533 patent applications received and the full automation of the issuing of patent certification, with all the attendant benefits of savings in terms of both cost and time. New legislation such as the Performers’ Act is also working to protect the revenues of emerging South African performers and their right to royalty revenues. The Corporate and Intellectual Property Law colloquium, held in November 2001 and opened by dti Deputy Minister Lindiwe Hendricks, was organised by the dti as a high level conference aimed at discussion on reform in the Corporate and IP sectors.
The Counterfeit Goods Amendment Act, passed during the year under review, gives more power to law enforcement agents (national inspectors) to act promptly against persons dealing in "pirated" goods. This latter aspect enforces intellectual property rights in accordance with international agreements, such as the Trade Related Aspects of Intellectual Property Rights (TRIPS). The Merchandise Marks Amendment Act and the Trade Practices Amendment Act were also passed. The former deals with the protection of issues such as well-known marks, state emblems of member states of the World Trade Organisation (WTO) and names of regional and international organisations. The latter Act deals with the protection of organised events such as the World Rugby Cup, World Cricket Cup, World Soccer Cup and the African Soccer Games, against persons who mislead the public by associating their trade with those of the sponsors, without permission, pretending that they are co-sponsors of such events. This protection builds confidence for sponsors in the South African intellectual property rights system and therefore encourages investment in the country.
The CCRD also audited all dti legislation with a view to seeing whether it was e-commerce compliant. This was important for simplification as well for improving competitiveness. Included in this was the roll-out of the computer complaints management system for Provincial Consumer Affairs Offices including training. Evaluations of the status of the NGO sector, oversight of the Standing Advisory Committee on Company Law and Intellectual Property Law and the Patent Examination Board all formed part of the dti's CCRD activities.
Doing it Better, Cheaper, Faster: SACRO Becomes CIPRO
The transformation of the South African Companies Office (SACRO) into the Companies and Intellectual Property Registration Office (CIPRO) is expressive of the gains made by the restructured dti over the past years.
Increasing Market Opportunities for South African Business
The dti plays a vigorous role in opening up new markets for South Africa. Despite the impact of September 11 2001, the preparatory work done by the dti and spearheaded by Minister Alec Erwin paid off when the World Trade Organisation (WTO) met in Doha at year’s end. The outcome of Doha was an agreement in principle to launch a new round of talks, this time with a development perspective of significance to the South. With a protectionist US regime and a European Union (EU) defensive about agricultural imports, South Africa's dti worked hard behind the scenes to make agreement possible at Doha.
Championing this drive within the dti is the International Trade and Economic Development division (ITED). ITED does the strategic groundwork to better understand the world trading system and to achieve greater market access for South African exports on more favourable terms.
Highlights in this regard include finalising the South African Customs Union agreement, a task fraught with difficulties but finally resolved to the benefit of all SACU members. SACU is the critical building-block within SADC and beyond that to NEPAD (New Partnership for Africa's Development). This success is a testament to the dti as South Africa emerges from its isolationist past to become a leading and well-briefed spokesperson for the developing world. Trade negotiations bring together commercial, political and economic considerations in a particular blend, and the dti is beginning to master this, led and greatly helped by the expertise of its Minister.
A clear demonstration of this came in the conclusion of the vexed dispute with the EU over wines and spirits. South Africa successfully negotiated its way through the minefield of geographical indicators (GIs) and intellectual property (IP) issues to conclude the final phase of the SA-EU Free Trade Agreement (FTA). This ended successfully and on terms favourable to South African exporters. It was a drawn out but critical process (given that the EU is South Africa’s leading trading partner) from which other, much better resourced countries, such as the US, can learn. Similar discussions at various stages of development are under way. For instance, there are the continuing dialogues with, amongst others, Brazil, India and Egypt, besides South Africa’s major trading partners.
Africa
ITED is also playing a supportive role within the NEPAD initiative with special reference to the trade chapter. In Africa generally, the dti continues its well-established interactions with key countries on the continent, for instance by way of sending technical missions there. Given that the EU itself is founded on economic self-interest, such initiatives lay the groundwork for broader political and social pan-African endeavours. As it is, the dti leads South Africa’s engagement with African countries for a coordinated, researched position in world trade negotiations.
CITA
ITED is involved with the establishment of a self-sustaining Commission for International Trade Administration (CITA), a replacement for the former Board of Trade and Tariffs. At the same time the dti is slashing time-scales for processing critical tariff-dispute issues and dealing with dumping, with great cost benefits for firms active in South Africa. CITA will also play a leadership role in establishing new SACU structures to harmonise trade and tariff agreements and monitoring. A new CITA bill was presented to Cabinet during the year under review.
Conclusion
ITED, within the dti, fulfils its mandate to promote and maintain South Africa’s trade relations with other countries to stimulate the domestic economy, maximise exports and investment and build trading relationships to support empowerment and economic growth. Amongst other things, CITA alone processed 2 250 rebate permits, 12 990 import and 11 084 export permits, and 28 trade remedies including anti-dumping measures. In these less visible but critical ways, the dti makes a real difference to the South African economy.
The Enterprise Organisation
The Enterprise Organisation (TEO) within the dti is its biggest programme in terms of funding. It provides financial and other support to firms, large and small, through incentives, matching grants and other cost-sharing grants. The aim overall is to promote investment, develop manufacturing and assist with exports.
Investment support centres on management, advisory, publicity and auxiliary services in support of the Manufacturing Development Programmes (MDP). These range from MDP Incentive Schemes to the Small and Medium Manufacturing Development Programme (SMMDP), the Critical Infrastructure Programme, the Skills Support Programme, the Competitiveness Fund, the Taxi Scrapping Allowance, the Sectoral Partnership Fund, the Micro Incentives Programme and the Enterprise Development Programme and Labour Induction Programme.
TEO has been fundamentally changed by the dti’s restructuring exercise, with an entirely new, strategised and targeted suite of incentive programmes introduced in 2001. This is in response to both customer demand and policy research to target support where it is needed most (e.g. SMMEs, new high opportunity sectors, job creation) and in directions identified by the IMS and Microeconomic Reform Strategy.
TEO achievements over the past year include:
As older, big enterprise-biased schemes such as the Tax Holiday Scheme are phased out in favour of more strategically-informed incentives, a range of new dti programmes will be coming into operation. They include the Micro Investor Programme, to support historically disadvantaged entrepreneurs and support mentorship and provide cash grants (with a special emphasis on hitherto neglected rural areas), which is still to come on stream. Similarly the Labour Induction Programme (supporting firms’ training and hiring costs) and the Skills Support Programme to assist retraining, are still being phased in. Enterprise Development disbursed R8.9 million, leveraging R40 million in investment.
All the dti incentive programmes have emerged from a comprehensive audit according to the highest standards of best corporate governance. The result is a clean slate in terms of transparency and corruption-free processes. New product development processes have been speeded up as reflected in the launch of the new suite of dti incentives, such as the Industrial Development Zone (IDZ) programme, the Strategic Investment Programme (SIP), the Small Medium Manufacturing Enterprises Development Programme (SMMEDP) for Tourism, and the Micro Investor Programme. The trend is clearly towards programmes that are much more carefully focused both on specific sectors and targeted industrial nodes. A much greater customer-centric approach is reflected in an expanded series of dti "road shows", to bring awareness of dti support to those often neglected communities and sectors that need it most. This interaction extends from small and emerging business to much closer interaction with big industrial firms. For 2002, this customer focus will include more careful attention to the related issues of BEE, gender equity and sustainable rural development. A further unifying theme is that of enhancing competitiveness, whether through enterprise support, SMME development, technology transfers and capital investment, or skills training, all supported by modernised, export-orientated infrastructure investment.
Special projects launched in the year under review include pilot programmes. Two new pilots on township development and on micro enterprise financial support were launched. And dti support now extends beyond start-ups to finding and securing markets and buttressing capacity to meet market requirements. In sum, the overall goal is higher standards of customer service backed by impeccable standards of integrity.
Much of TEO’s work is increasingly integrated with, and supportive of, the other major service department of the dti, Trade and Investment South Africa (TISA).
Trade and Investment South Africa (TISA)
TISA’s core business increasingly rests as much on trade facilitation as it does with the marketing of South Africa to international investors, and to export support, including export credit reinsurance.
Its Investment Promotion and International Marketing Programme develops exports on a sectoral basis in close liaison with the private sector. This means, amongst other things, a much stronger sector specialist focus. It is supported by expert advisory services to business, epitomised in the Export Help Desk. Representatives to foreign offices located within South Africa’s embassies and consulates, but staffed by economic specialists, provide the dti in South Africa, via TISA, with its foreign sales and marketing force.
TISA now has seven sector marketing strategies in place, which have aggressively targeted companies abroad (over 2 640 companies) in a marketing and communications campaign. This has generated new investments in 25 projects in South Africa in the sectors of agroprocessing, clothing, automotive and tourism.
The former Export Credit Reinsurance Board and the Export Credit Reinsurance Scheme were replaced by the Export Credit Insurance Corporation in 2001/2002. The Export Credit Insurance Corporation covers R2.8 billion in total contracts averaging R16 million per applicant. Committed investment in South Africa amounts to R4.4 billion.
In support of this the new website, TISAGLOBAL.com, extends South Africa’s electronic business and promotion reach. TISA also supports outward investment into Africa (R350 million per annum) from South Africa, as part of government’s broader objective of sustained regional growth. Some 250 site visits to promote investments in targeted sectors were initiated by TISA in the year under review. These initiatives sit alongside the broader efforts to market South Africa effectively as a business destination of choice in a highly competitive world economy. Such promotion includes key inputs into President Mbeki’s International Investment Council (which met in March 2002) and the associated International Marketing Council. It means support for and involvement in a host of international exhibitions and trade shows, as well as high-level trade and diplomatic missions.
The latter culminated in the Celebrate South Africa campaign in the UK in June 2001. This coincided with the SA-UK Partnership Week, where President Mbeki, with a strong business delegation, benefited from a TISA-backed and organised mission. Similar missions to Japan in October 2001 and to the People’s Republic of China later in the year also made their contribution. TISA was involved in 15 national pavilions promoting South African products abroad in 2001. They ranged from Germany to the US and special attempts were made to promote women-owned and BEE-owned SMMEs.
The Export Councils that provide formal business support to TISA export initiatives on a sectoral basis have been revamped. The emphasis is much more on SMME and PDI support, rather than giving support to established enterprises. A much more strategically-informed, sector-based approach in terms of the IMS and the Microeconomic Reform Strategy is also evident.
One of the more interesting drives by the dti through TISA during the year under review is on the logistics front. For the first time, logistical issues such as transport infrastructure and supply chain costs, the bedrock of South African competitiveness in the world economy, are becoming a critical area of focus for TISA. Two projects in particular deserve attention.
First is the Gauteng-Durban corridor, where TISA has brought together diverse role players across the supply chain to smooth processes, eliminate blockages, and lower costs. Included in this are manufacturers, service providers, construction and transport companies, and technology experts.
Second is the launch of a national electronic trade documentation and management system, in which TISA was centrally instrumental. This produces huge efficiencies in both speed and cost. Again, the Microeconomic Reform Strategy’s emphasis on lowering the cost of business in ports is of relevance here.
The result of all these efforts over the past year can be encapsulated in just a few of the successful TISA investment promotion projects. A good example is the Herdmens investment of R169 million in North West Province, producing linen flax, which will be processed for export. It involves not just investment but spatial equity, job creation and skills and technology transfer to an entirely new South African export sector.
Micro Healthcare, a Dubai-based international company involved in the production of generic drugs, was assisted by TISA to invest in Bethlehem in the Free State Province. And Novel Industries, supported by TISA, expanded its investments in the manufacture of textiles in the high-unemployment area of Atlantis in the Western Cape Province, creating fully 1 500 jobs. More details on these and others are available from TISA itself.
Similarly, TISA promotes exports. They range, again to choose but a few examples, from an SMME exporting a fabrication unit for chimney stacks to Uzbekistan for R40 million, to Concept Jewellery of the Western Cape, employing black jewellers to export to the US. There are many more success stories to tell.
The tables comprising the dti Human Resources Report for 2001-2002 show, amongst other things, significant progress in Staff Movement and Transformation.
The dti's human resource programmes reflect an improved sensitivity to issues of affirmative action and gender equity. Moves towards gender equity are spearheaded by Deputy Minister Lindiwe Hendricks, both within the dti and outside, and strongly supported by the Minister, the Deputy Minister and the Director-General.
Within the dti, the restructuring of the department since 2000 has allowed great strides to be made towards gender equity, including at the senior management level. During the year under review, women led three of the six dti divisions, while the dti's Chief Operating Officer is Ms Portia Molefe.
Overseeing this process is a full time, in-house manager for the dti's Gender Programme, Ms Mmabatho Matiwane. Tables 5.1 to 5.3 highlight the gains made on the representation of women in the ranks of senior management, and the dti's achievements in exceeding its targets in terms of affirmative action.
These gains extend well beyond the dti itself, with Deputy Minister Hendricks laying the groundwork for a major new national initiative to help women in business, the South African Women Entrepreneurs' Network (SAWEN). Located centrally within the dti's broader drive to mainstream women in the South African economy and to support and grow small business in South Africa, SAWEN provides an opportunity for women in business to network and to lobby more effectively. In addition, SAWEN is compiling a database to allow it to provide useful business information to women in business.
Despite the difficulties of the transformation process, the dti has emerged with a very low level of staff turnover (less than 10% - see Tables 4.1 to 4.3) and no retrenchments.
Report of the Audit Committee on the Financial Statements ended 31 March 2002
Report of the Audit Committee to the South African Parliament
The Audit Committee, appointed as an oversight committee over risk management, internal audit and financial reporting, confirms that, in accordance with its formal terms of reference and the requirements of the Treasury Regulations, it has reviewed:
Where weaknesses were identified in internal controls, corrective action has been taken to eliminate or reduce the concomitant risks. Accordingly, in our opinion, the internal controls of the dti, except those reported on in the report of the Auditor General, operated satisfactorily for the year under review to ensure the dti’s assets were safeguarded, proper accounting records were maintained and resources were utilised efficiently. The Committee is also satisfied with the content and quality of monthly management reports issued during the year under review.
Following our review of the annual financial statements for the year ended 31 March 2002, we are of the opinion that, in all material respects, they comply with the relevant provisions of the Public Finance Management Act of 1999, as amended, and Treasury Regulations, and that they fairly present the results of the operations, cash flow and financial position of the dti.
Mrs Gloria Tomatoe Serobe - Chairperson
Mr Anthony Coombe CASA – Member
Dr Alistair Ruiters – Member and Accounting Officer
10 July 2002
View the dti Annual Financial Statements - 31 March 2002
